[Federal Register Volume 69, Number 165 (Thursday, August 26, 2004)]
[Rules and Regulations]
[Pages 52444-52448]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 04-19464]


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FEDERAL COMMUNICATIONS COMMISSION

47 CFR Part 64

[WC Docket No. 03-225; FCC 04-182]


Default Compensation Rate for Dial-Around Calls From Payphones 
Increased to $.494

AGENCY: Federal Communications Commission.

ACTION: Final rule.

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SUMMARY: By this document, the Commission approves an increase from 
$.24 to $.494 in the default compensation rate for dial-around calls 
from payphones. This is the first increase in the dial-around default 
rate in over five years. The intended effect of this order is to ensure 
the widespread deployment of payphones and to provide fair compensation 
to payphone service providers.

DATES: Effective September 27, 2004.

ADDRESSES: All filings must be sent to the Commission's Secretary, 
Marlene H. Dortch, Office of the Secretary, Federal Communications 
Commission, Room TW-A325, 445 Twelfth Street SW., Washington, DC 20554.

FOR FURTHER INFORMATION CONTACT: Jon Stover, Wireline Competition 
Bureau, Pricing Policy Division, (202) 418-0390.

SUPPLEMENTARY INFORMATION: This is a summary of the Commission's Report 
and Order (Order), adopted on August 12, 2004. The complete text of 
this Order is available for public inspection Monday through Thursday 
from 8 a.m. to 4:30 p.m. and Friday from 8 a.m. to 11:30 a.m. in the 
Commission's Consumer and Governmental Affairs Bureau, Reference 
Information Center, Room CY-A257, 445 Twelfth Street, SW., Washington, 
DC 20554. The complete text is available also on the Commission's 
Internet site at http://www.fcc.gov. Alternative formats are available 
to persons with disabilities by contacting Brian Millin at (202) 418-
7426 or TTY (202) 418-7365. The complete text of the Order may be 
purchased from the Commission's duplicating contractor, Best Copy and 
Printing Inc., Room CY-B402, 445 Twelfth Street, SW., Washington, DC 
20554, telephone 202-488-5300, facsimile 202-488-5563 or e-mail at 
[email protected].

Synopsis of Final Rule

    1. The Order approves an increase from $.24 to $.494 in the 
payphone dial-around default rate based on cost evidence submitted by 
the American Public Communications Council (APCC), the RBOC Payphone 
Coalition (BellSouth Public Communications, Inc., SBC Communications, 
Inc., and the Verizon telephone companies) and numerous interexchange 
(long-distance) carriers. The new rate of $.494 ensures that all 
payphone service providers (PSPs) are fairly compensated for each and 
every completed call as mandated by 47 U.S.C. 276.
    2. According to cost studies submitted by APCC and the RBOC 
Payphone Coalition and the Commission's analysis of those cost studies, 
per-payphone costs have not changed dramatically since 1998, but 
falling call volumes at payphones have caused a major increase in per-
call costs at marginal payphones. Thus, the Commission concluded that

[[Page 52445]]

the current dial-around compensation rate is no longer adequate to 
ensure widespread deployment of payphones because $0.24 no longer 
provides cost recovery for PSPs.
    3. The proposed rate increase was opposed by six interexchange 
carriers (IXCs) and the Attorney General of the State of Texas. They 
contended that the Commission should not change the default 
compensation rate because market forces by themselves are able to 
determine the appropriate level of payphone deployment. The Commission 
found that these IXCs did not persuasively demonstrate how PSPs can be 
effectively compensated in a fully deregulated market.
    4. The Commission received comments both on the general issue of 
whether to prescribe a different payphone compensation rate and on the 
specific issue of the amount of the rate. The Commission also received 
comments on the APCC and RBOC Payphone Coalition (Coalition) cost 
studies. Further, the Commission received comments on whether the 
methodologies reflected in those studies are consistent with the rate 
methodology the Commission used in Implementation of the Pay Telephone 
Reclassification and Compensation Provisions of the Telecommunications 
Act of 1996, CC Docket No. 96-128, Third Report and Order, 64 FR 13701, 
March 22, 1999. The Commission also received comments on whether the 
cost information presented in those studies accurately represents the 
costs currently incurred by payphone service providers. The Commission 
did not receive comments refuting the overwhelming majority of the 
information presented in the APCC and Coalition studies.
    6. In the Order, the Commission again concluded that the 
methodology the Commission adopted in the Third Report and Order is the 
appropriate methodology to use in reevaluating the default dial-around 
compensation rate. The decision to use that methodology was affirmed by 
the United States Court of Appeals for the D.C. Circuit.
    7. Based on the evidence in the record, the Commission concluded 
that an increase in the dial-around rate would is not so elastic that 
an increase in dial-around rates will suppress demand to the point of 
decreasing revenues. Moreover, the Commission found that the IXCs 
failed to present sufficient evidence to determine elasticities. Also, 
because monthly call volume is a key driver in determining the per-call 
compensation rate, the Commission sought comment on the efficacy and 
merit of the use in the APCC and Coalition cost studies of marginal 
payphone monthly call volumes of 233.9 and 219, respectively. Based on 
the evidentiary record, the Commission concluded that use of the APCC 
and Coalition volumes was reasonable.
    8. The Commission sought comment on whether the particular inputs 
the Commission adopted in the Third Report and Order for various cost 
categories continued to be appropriate or whether there are changed 
conditions that warrant modifications of the particular inputs used in 
1999. After reviewing the record, the Commission concluded that use of 
the Third Report and Order cost inputs for setting the rate in this 
proceeding was reasonable.
    9. The Commission sought comment on whether additional cost 
categories are needed beyond those identified in the Third Report and 
Order. Specifically, the APCC and Coalition cost studies add an element 
for collection costs specific to dial-around compensation, and the 
Coalition study adds an element for uncollectibles. In the Third Report 
and Order, the Commission declined to include these costs in setting 
the dial-around rate, finding that the record in that docketed 
proceeding contained insufficient information to determine the extent 
to which administration costs vary when the number of coinless calls 
increases relative to coin calls. AT&T and others argue that the Third 
Report and Order methodology precludes the inclusion of an element for 
bad debt. Upon reviewing the record evidence, the Commission concluded 
that the addition of cost inputs reflecting collection costs and bad 
debt was reasonable.
    10. The Commission sought comment on whether and how the Commission 
should consider the revenues and costs associated with the provision of 
additional services and activities in conjunction with payphones, such 
as Internet access or rental of advertising space. The Commission 
decided that these ``incidental'' revenues are relevant and should be 
subtracted from the the overall payphone revenue requirement.
    11. Sprint urged the Commission to reconsider adopting a ``caller-
pays'' compensation scheme, in which the caller would deposit coins or 
other forms of advance payment before making a dial-around call. In the 
Third Report and Order, the Commission noted that some economists would 
argued that a caller-pays methodology forms the basis for the purest 
market-based approach. The Commission rejected this approach based on 
evidence that Congress disapproved of a caller-pays methodology. For 
this reason, the Commission tentatively concluded in this NPRM that it 
should not adopt a ``caller-pays'' methodology. The Commission sought 
comment on this tentative conclusion.
    12. In concluding that while it was legally possible to fashion a 
caller-pays system, the Commission decided that it did not make sense 
to increase the inconvenience to consumers of dial-around calling (by 
requiring the deposit of coins), and that nothing in Section 276 
superseded 47 U.S.C. 226(e) effective prohibition of any form of an 
advance payment system. Thus, even if the convenience of coinless 
calling may come at a high price to the consumer, the Commission found 
that the record was devoid of any evidence supporting a new impediment 
to toll free calling.

Paperwork Reduction Act Analysis

    13. This Order contains no new or modified information collections 
subject to the Paperwork Reduction Act of 1995, Pub. L. 104-13.

Congressional Review Act

    14. The Commission will send a copy of this Report and Order in a 
report to be sent to Congress and the Government Accountability Office 
(GAO) pursuant to the Congressional Review Act, see 5 U.S.C. 801 
(a)(1)(A).

Final Regulatory Flexibility Act Analysis

    15. As required by the Regulatory Flexibility Act (RFA), 5 U.S.C. 
603, the Commission incorporated an Initial Regulatory Flexibility 
Analysis (IRFA) of the possible significant economic impact on small 
entities by the policies and rule(s) in the Notice of Proposed 
Rulemaking (NPRM). No public comments were submitted on this IRFA.
    16. This present Final Regulatory Flexibility Act analysis conforms 
to the RFA, as amended. See 5 U.S.C. 604. The RFA, 5 U.S.C. 601 et 
seq., has been amended by the Contract with America Advancement Act of 
1996, Pub. L. 104-121, 110 Stat. 847 (1996) (CWAA). Title II of the 
CWAA is the Small Business Regulatory Enforcement Fairness Act of 1996 
(SBREFA). The Commission will send a copy of this Order, including this 
RFA, to the Chief Counsel for Advocacy of the Small Business 
Administration. See 5 U.S.C. 604(b).

Need for, and Objective of the Rule

    17. In adopting section 276 in 1996, Public Law 104-104, 110 Stat. 
56 (1996) (codified at 47 U.S.C. 276), Congress mandated inter alia 
that the Commission ``establish a per call compensation plan to ensure 
that all payphone service providers are fairly

[[Page 52446]]

compensated for each and every completed intrastate and interstate call 
using their payphone * * * .'' In this Order, the Commission reexamined 
the default payphone compensation rate the Commission prescribed in 
1999, and prescribed a new default payphone compensation rate of $.494.

Legal Basis

    18. The proposed action is supported by 47 U.S.C. 151, 152, 154(i)-
(j), 201, 226 and 276, as well as 47 CFR 1.1, 1.48, 1.411, 1.412, 
1.415, 1.419, and 1.1200-1216.

Description and Estimate of the Number of Small Entities to Which Rule 
Applies

    19. The RFA directs agencies to provide a description of, and an 
estimate of, the number of small entities that may be affected by the 
rule adopted herein, where feasible. 5 U.S.C. 604(a)(3). The RFA 
generally defines ``small entity'' as having the same meaning as the 
terms ``small business,'' ``small organization,'' and ``small 
governmental jurisdiction.'' 5 U.S.C. 601(6). In addition, the term 
``small business'' has the same meaning as the term ``small business 
concern'' under the Small Business Act, unless the Commission has 
developed one or more definitions that are more appropriate to its 
activities. 5 U.S.C. 601(3) (incorporating by reference the definition 
of ``small business concern'' in 5 U.S.C. 632). Under the Small 
Business Act, a ``small business concern'' is one that: (1) Is 
independently owned and operated; (2) is not dominant in its field of 
operation; and (3) meets any additional criteria established by the 
Small Business Administration (SBA). 5 U.S.C. 632. Pursuant to 5 U.S.C. 
601(3), the statutory definition of a small business applies ``unless 
an agency after consultation with the Office of Advocacy of the Small 
Business Administration and after opportunity for public comment, 
establishes one or more definitions of such term which are appropriate 
to the activities of the agency and publishes such definition in the 
Federal Register.''
    20. The Commission included small incumbent local exchange carriers 
(LECs) in this IRFA analysis. As noted above, a ``small business'' 
under the RFA is one that, inter alia, meets the pertinent small 
business size standard (e.g., a telephone communications business 
having 1,500 or fewer employees), and ``is not dominant in its field of 
operation.'' 5 U.S.C. 601(3). The SBA's Office of Advocacy contends 
that, for RFA purposes, small incumbent LECs are not dominant in their 
field of operation because any such dominance is not ``national in 
scope. See Letter from Jere W. Glover, Chief Counsel for Advocacy, SBA, 
to Chairman William E. Kennard, FCC (May 27, 1999). The Small Business 
Act contains a definition of ``small business concern,'' which the RFA 
incorporates into its own definition of ``small business.'' See 5 
U.S.C. 632(a) (Small Business Act); 5 U.S.C. 601(3) (RFA). SBA 
regulations interpret ``small business concern'' to include the concept 
of dominance on a national basis. 13 CFR 121.102(b). The Commission 
therefore included small incumbent LECs in this RFA analysis, although 
the Commission emphasizes that this RFA has no effect on the 
Commission's analyses and determinations in other, non-RFA contexts.
    21. Wired Telecommunications Carriers. The SBA has developed a 
small business size standard for Wired Telecommunications Carriers, 
which consists of all such companies having 1,500 or fewer employees. 
13 CFR 121.201, NAICS code 513310 (changed to 717110 in October of 
2002). According to Census Bureau data for 1997, there were 2,225 firms 
in this category, total, that operated for the entire year. U.S. Census 
Bureau, 1997 Economic Census, Subject Series: Information, 
``Establishment and Firm Size (Including Legal Form of Organization),'' 
Table 5, NAICS code 513310 (issued October of 2000). Of this total, 
2,201 firms had employment of 999 or fewer employees, and an additional 
24 firms had employment of 1,000 employees or more. Id. The Commission 
notes that the census data do not provide a more precise estimate of 
the number of firms that have employment of 1,500 or fewer employees; 
the largest category provided is ``Firms with 1,000 employees or 
more.'' Under the size standard of 1,500 or fewer employees, the great 
majority of Wired Telecommunications Carriers can be considered small.
    22. Incumbent Local Exchange Carriers. Neither the Commission nor 
the SBA has developed a size standard for small businesses specifically 
applicable to incumbent local exchange services. The closest applicable 
size standard under the SBA rules is for Wired Telecommunications 
Carriers. Under that size standard, such a business is small if it has 
1,500 or fewer employees. 13 CFR 121.201, North American Industry 
Classification System (NAICS) code 513310 (changed to 517110 in October 
of 2002). According to Commission data, 1,329 carriers reported that 
they were engaged in the provision of local exchange services. FCC, 
Wireline Competition Bureau, Industry Analysis and Technology Division, 
Trends in Telephone Service (May 2002) (hereinafter Telephone Trends 
Report), Table 5.3. Of these 1,329 carriers, an estimated 1,024 have 
1,500 or fewer employees and 305 have more than 1,500 employees. Id. 
Consequently, the Commission estimates that most providers of local 
exchange service are small businesses that may be affected by the 
rule(s) and policies proposed herein.
    23. Competitive Local Exchange Carriers (CLECs). Neither the 
Commission nor the SBA has developed a size standard for small 
businesses specifically applicable to providers of competitive local 
exchange services or to competitive access providers (CAPs) or to 
``Other Local Exchange Carriers,'' all of which are discrete categories 
under which Telecommunications Relay Service (TRS) data are collected. 
The closest applicable size standard under the SBA rules is for Wired 
Telecommunications Carriers. Under that SBA size standard, such a 
business is small if it has 1,500 or fewer employees. 13 CFR 121.201, 
NAICS code 513310 (changed to 517110 in October of 2002). According to 
Commission data, 532 companies reported that they were engaged in the 
provision of either competitive access provider services or competitive 
local exchange carrier services. Telephone Trends Report, Table 5.3. Of 
these 532 companies, an estimated 411 have 1,500 or fewer employees and 
121 have more than 1,500 employees. Id. In addition, 55 carriers 
reported that they were ``Other Local Exchange Carriers.'' Id. Of the 
55 ``Other Local Exchange Carriers,'' an estimated 53 have 1,500 or 
fewer employees and two have more than 1,500 employees. Id. 
Consequently, the Commission estimates that most providers of 
competitive local exchange service, competitive access providers, and 
``Other Local Exchange Carriers'' are small entities that may be 
affected by the rule(s) and policies proposed herein.
    24. Local Resellers. The SBA has developed a size standard for 
small businesses within the category of Telecommunications Resellers. 
Under that SBA size standard, such a business is small if it has 1,500 
or fewer employees. 13 CFR 121.201, NAICS code 513330 (changed to 
517310 in October of 2002). According to the Commission data, 134 
companies reported that they were engaged in the provision of local 
resale services. Telephone Trends Report, Table 5.3. Of these 134 
companies, an estimated 131

[[Page 52447]]

have 1,500 or fewer employees and three have more than 1,500 employees. 
Id. Consequently, the Commission estimates that the great majority of 
local resellers are small entities that may be affected by the rules 
and policies proposed herein.
    25. Toll Resellers. The SBA has developed a size standard for small 
businesses within the category of Telecommunications Resellers. Under 
that SBA size standard, such a business is small if it has 1,500 or 
fewer employees. 13 CFR 121.201, NAICS code 513330 (changed to 517310 
in October of 2002). According to the Commission's most recent 
Telephone Trends Report data, 576 companies reported that they were 
engaged in the provision of toll resale services. Telephone Trends 
Report, Table 5.3. Of these 576 companies, an estimated 538 have 1,500 
or fewer employees and 38 have more than 1,500 employees. Id. 
Consequently, the Commission estimates that the great majority of toll 
resellers are small entities that may be affected by the rules and 
policies proposed herein.
    26. Payphone Service Providers. Neither the Commission nor the SBA 
has developed a size standard for small businesses specifically 
applicable to payphone service providers (PSPs). The closest applicable 
size standard under the SBA rules is for Wired Telecommunications 
Carriers. Under that standard, such a business is small if it has 1,500 
or fewer employees. 13 CFR 121.201, NAICS code 513310 (changed to 
517110 in October of 2002). According to the Commission's most recent 
Telephone Trends Report data, 936 PSPs reported that they were engaged 
in the provision of payphone services. Telephone Trends Report, Table 
5.3. Of these 936 PSPs, an estimated 933 have 1,500 or fewer employees 
and three have more than 1,500 employees. Id. Consequently, the 
Commission estimates that the great majority of PSPs are small entities 
that may be affected by the rules and policies proposed herein.
    27. Interexchange Carriers (IXCs). Neither the Commission nor the 
SBA has developed a size standard for small businesses specifically 
applicable to providers of interexchange services. The closest 
applicable size standard under the SBA rules is for Wired 
Telecommunications Carriers. Under that standard, such a business is 
small if it has 1,500 or fewer employees. 13 CFR 121.201, NAICS code 
513310 (changed to 517110 in October of 2002). According to Commission 
data, 229 carriers reported that their primary telecommunications 
service activity was the provision of interexchange services. Telephone 
Trends Report, Table 5.3. Of these 229 companies, an estimated 181 have 
1,500 or fewer employees and 48 have more than 1,500 employees. Id. 
Consequently, the Commission estimates that the majority of 
interexchange carriers are small entities that may be affected by the 
rules and policies proposed herein.
    28. Operator Service Providers. Neither the Commission nor the SBA 
has developed a size standard for small businesses specifically 
applicable to operator service providers. The closest applicable size 
standard under the SBA rules is for Wired Telecommunications Carriers. 
Under that standard, such a business is small if it has 1,500 or fewer 
employees. 13 CFR 121.201, NAICS code 513310 (changed to 517110 in 
October of 2002). According to Commission data, 22 companies reported 
that they were engaged in the provision of operator services. Telephone 
Trends Report, Table 5.3. Of these 22 companies, an estimated 20 have 
1,500 or fewer employees and two have more than 1,500 employees. Id. 
Consequently, the Commission estimates that the great majority of 
operator service providers are small entities that may be affected by 
the rules and policies proposed herein.
    29. Prepaid Calling Card Providers. The SBA has developed a size 
standard for small businesses within the category of Telecommunications 
Resellers. Under that SBA size standard, such a business is small if it 
has 1,500 or fewer employees. 13 CFR 121.201, NAICS code 513330 
(changed to 517310 in October of 2002). According to Commission data, 
32 companies reported that they were engaged in the provision of 
prepaid calling cards. Telephone Trends Report, Table 5.3. Of these 32 
companies, an estimated 31 have 1,500 or fewer employees and one has 
more than 1,500 employees. Id. Consequently, the Commission estimates 
that the great majority of prepaid calling card providers are small 
entities that may be affected by the rules and policies proposed 
herein.
    30. Other Toll Carriers. Neither the Commission nor the SBA has 
developed a size standard for small businesses specifically applicable 
to ``Other Toll Carriers.'' This category includes toll carriers that 
do not fall within the categories of interexchange carriers, operator 
service providers, prepaid calling card providers, satellite service 
carriers, or toll resellers. The closest applicable size standard under 
the SBA rules is for Wired Telecommunications Carriers. Under that 
standard, such a business is small if it has 1,500 or fewer employees. 
13 CFR 121.201, NAICS code 513310 (changed to 517110 in October of 
2002). According to Commission data, 42 companies reported that their 
primary telecommunications service activity was the provision of 
``Other Toll'' services. Telephone Trends Report, Table 5.3. Of these 
42 companies, an estimated 37 have 1,500 or fewer employees and five 
have more than 1,500 employees. Id. Consequently, the Commission 
estimates that most ``Other Toll Carriers'' are small entities that may 
be affected by the rules and policies proposed herein.

Description of Projected Reporting, Recordkeeping, and Other Compliance 
Requirements

    31. The Commission finds that the new rate adopted herein does not 
increase existing reporting, recordkeeping or other compliance 
requirements.

Steps Taken To Minimize Significant Economic Impact on Small Entities, 
and Significant Alternatives Considered

    32. The RFA requires an agency to describe any significant, 
specifically small business, alternatives that it has considered in 
reaching its proposed approach, which may include the following four 
alternatives (among others): (1) The establishment of differing 
compliance or reporting requirements or timetables that take into 
account the resources available to small entities; (2) the 
clarification, consolidation, or simplification of compliance or 
reporting requirements under the rule for small entities; (3) the 
performance, rather than design, standards; and (4) an exemption from 
coverage of the rule, or any part thereof, for small entities. 5 U.S.C. 
603(c).
    33. The overall objective of this proceeding was to evaluate 
whether changes needed to be made to the current default rate of 
compensation for dial-around calls originating at payphones, in order 
to ensure that payphone service providers are fairly compensated, 
promote payphone competition, and promote the widespread deployment of 
payphone services. The Order solely adopted a new level of dial-around 
compensation.

Federal Rules That May Duplicate, Overlap, or Conflict With the 
Proposed Rules

    34. None.

Ordering Clauses

    35. Accordingly, it is ordered that, pursuant to the authority 
contained in 47 U.S.C. 151, 154, 201-205, 215, 218,

[[Page 52448]]

219, 220, 226, 276 and 405, that this Report and Order is adopted.
    36. It is further ordered that the Commission's Consumer and 
Governmental Affairs Bureau, Reference Information Center, shall send a 
copy of this Report and Order, including the Final Regulatory 
Flexibility Analysis, to the Chief Counsel for Advocacy of the Small 
Business Administration.

List of Subjects in 47 CFR Part 64

    Communications common carriers, Telecommunications, Telephone.

    Federal Communications Commission.
Marlene H. Dortch,
Secretary.

Rules Changes

0
The Federal Communications Commission amends 47 CFR part 64 as follows:

PART 64--MISCELLANEOUS RULES RELATING TO COMMON CARRIERS

0
1. The authority citation for part 64 continues to read as follows:

    Authority: 47 U.S.C. 154, 254(k); secs. 403(b)(2)(B), (c), Pub. 
L. 104-104, 110 Stat. 56. Interpret or apply 47 U.S.C. 201, 218, 
225, 226, 228, and 254(k) unless otherwise noted.


0
2. Revise Sec.  64.1300(c) to read as follows:


Sec.  64.1300  Payphone compensation obligation.

* * * * *
    (c) In the absence of an agreement as required by paragraph (a) of 
this section, the carrier is obligated to compensate the payphone 
service provider at a per-call rate of $.494.
[FR Doc. 04-19464 Filed 8-25-04; 8:45 am]
BILLING CODE 6712-01-P